Compromise and arrangement under section 391 can support reconstruction, share exchange, and takeover-like restructuring if mandatory bars are not shown.

A scheme of compromise and arrangement under section 391 is treated as a complete code for reconstruction and related corporate restructuring, including arrangements with takeover-like effects, where the statutory majority supports it and the classes are fairly represented. The text notes that prior permission for fresh capital may still be required under the Capital Issues (Control) Act, 1947, but the absence of such permission does not by itself prevent consideration or sanction of the scheme if permission can be pursued later. It also explains that sections 372, 395, 394 and 393(1) do not automatically bar sanction where the arrangement is not a prohibited purchase, a mandatory takeover procedure is unnecessary, no amalgamation is involved, and the disclosures are adequate.

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Issues: (i) Whether a scheme of compromise and arrangement under section 391 could be sanctioned notwithstanding absence of prior permission for issue of fresh capital and despite objections based on the Capital Issues (Control) Act, 1947 and the Monopolies and Restrictive Trade Practices Act, 1969; (ii) Whether non-compliance with sections 372, 395, 394 and 393(1) of the Companies Act, 1956 barred sanction of the scheme; (iii) Whether the scheme was fair, reasonable, properly represented, and supported by the requisite disclosures so as to justify sanction.

Issue (i): Whether a scheme of compromise and arrangement under section 391 could be sanctioned notwithstanding absence of prior permission for issue of fresh capital and despite objections based on the Capital Issues (Control) Act, 1947 and the Monopolies and Restrictive Trade Practices Act, 1969.

Analysis: The scheme necessarily involved issue of fresh shares, and part of that issue at a premium required permission under the Capital Issues (Control) Act, 1947. Even so, the court held that the absence of prior permission did not prevent consideration or sanction of the scheme, because the permission could be sought after sanction and the issue formed only one element of the broader reconstruction. The objections under the Monopolies and Restrictive Trade Practices Act, 1969 also failed because the material facts necessary to show that Kohinoor was an undertaking to which section 20(a) applied were not established, and the alleged interconnected undertakings were not proved. On the record, the Act did not bar implementation of the scheme.

Conclusion: The objections based on the Capital Issues (Control) Act, 1947 and the Monopolies and Restrictive Trade Practices Act, 1969 were rejected.

Issue (ii): Whether non-compliance with sections 372, 395, 394 and 393(1) of the Companies Act, 1956 barred sanction of the scheme.

Analysis: The court held that section 391 is a complete code for compromise and arrangement, capable of covering reconstruction, reorganization and even a takeover-type arrangement, unless a specific provision makes a different procedure mandatory. The exchange of shares contemplated by the scheme was not treated as a prohibited purchase under section 372, since the transaction was part of a reconstruction arrangement and not an investment out of the company's surplus funds in the sense targeted by that provision. Likewise, the scheme was not required to proceed under section 395 merely because its commercial effect resembled a takeover, and it was not an amalgamation attracting section 394 because Navjivan retained its separate identity as a wholly owned subsidiary. The statement accompanying the notice was held to comply with section 393(1), since the terms, effect, and material interests were sufficiently disclosed and no different effect on directors' interests was shown.

Conclusion: The alleged non-compliance with sections 372, 395, 394 and 393(1) did not invalidate the scheme.

Issue (iii): Whether the scheme was fair, reasonable, properly represented, and supported by the requisite disclosures so as to justify sanction.

Analysis: The statutory majority at the meetings was overwhelming, the classes were fairly represented, and no coercion of the minority was established. The court accepted that the practical alternative was between rehabilitation of the undertaking and its commercial death, and the scheme was regarded as one that a reasonable business person could approve. The disclosures annexed to the petition were treated as sufficient in the circumstances, and the challenge that the proceeding was an abuse because Kohinoor had purchased shares shortly before sponsoring the scheme was rejected. The court also rejected the contention that the petition could not be maintained by Kohinoor and that the Central Government's representation rendered the earlier sanction merely interlocutory. The court affirmed that the scheme was commercially workable and conducive to revival of the mill.

Conclusion: The scheme was held to be fair, reasonable, commercially sound, and properly before the court for sanction.

Final Conclusion: The scheme of compromise and arrangement was confirmed with modifications and directions, the revival of the undertaking was authorised, and the connected winding-up petitions became infructuous and were withdrawn.

Ratio Decidendi: A scheme of compromise and arrangement under section 391 may be sanctioned as a complete code even where its implementation involves share exchange, increase of capital, or a takeover-like effect, provided the statutory majority supports it, the classes are fairly represented, the arrangement is commercially reasonable, and no specific mandatory prohibition is shown to be violated.

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